Dan Swinhoe (Asia) - Working with China

All companies have to deal with competition - it's a fact of business that has to be accepted. But what about when the competition is getting a helping hand from their government? Do you cry foul? Or do you redouble your efforts?

"Made in China" no longer carries the stigma of shoddy mass production that it used to. In a report on US/China competition the facts are laid bare; "The days of China as the low-cost, low-tech manufacturer of the rest of the world's high-tech innovations may soon be coming to a close," it reads. "From high speed trains to next-generation mobile phones to advanced clean-technology products, Chinese products now boast top-flight technologies that they can sell competitively abroad and that dominate their domestic market." Thanks to government funding, it's possible for companies to undercut competitors and sell their products at extremely low prices. Bryan Ashley, the Chief Marketing Officer for American solar producer Suniva, told the Guardian,"Free money is impossible to compete with. If something isn't done, there will be no American product left on the market."

This month a U.S. Senator wrote an open letter to Barrack Obama, calling on him to save the American solar industry. The blame for the industry's troubles were laid squarely on the doorstep of China. Subsidized solar products from the People's Republic are expected to see a 240-fold rise this year.

It's not just solar where this is happening. Industries across the country are suffering; textiles, furniture, agriculture, and automobiles just to name a few. Even chicken farmers in Zambia are coming under pressure. One way to counter China's perceived muscling in is to do the same thing back. The export growth of US to China increased 486% in the last decade and there's no reason it can't expand further, as American brands remain highly attractive to Chinese consumers, at least for now. But as China's domestic businesses grow, the window to expand into the east may be closing quickly.

Chinese competition has become an increasingly politicized issue, the two presidential candidates have been trading barbs over "taking China to the mat," Romney even going so far as to say Obama has let "China run all over us," and the White House announced that it would be demanding dispute settlement consultations with the Chinese government at the WTO.

Bloomberg's comparison for US vs. China as ‘economic Darwinism vs. economic intelligent design' is fairly spot on, and natural selection can't really win in a fight against higher powers. To this end, government intervention may be seen as a necessity, but will it actually make a difference? It seems unlikely. Instead of political conflict, proactive measures to address the root causes may have more of an impact; more investment, focus on innovation, better regulation and a attention on domestic manufacturing may spur businesses to become more competitive and stave off the rot.

GTM Research's Director of Solar, Shayle Kann, told the Guardian; It will be difficult for the U.S. to compete with China at its own game -- namely, high-volume manufacturing of a commoditized product -- given the cost advantages available for Chinese manufacturing. However, the U.S. can and should continue to develop and commercialize innovative technologies that offer lower costs than traditional panels. These new technologies are generally proprietary, require a more skilled labour force, and are difficult to duplicate.

Though he was talking again about solar, the point is applicable to any industry. Competing with cheap labour and subsidized competition is never going to work, but doing it better will. Delivering better services quicker and more efficiently will mean the price won't matter so much. How US/China competition will look in the coming years is difficult to say, but what is certain is that unless US companies change tack, they may well soon find themselves outmatched